STANDARD COSTING

Presented by:
Grace Ann Lim
Aileen Manangan
Kimberly Marquez
STANDARD COSTING
Standard costs represent the
A tool for planning budgets, “planned” costs of a production and
managing and controlling costs, and are generally established well
evaluating cost management before production begins.
performance.

Under standard costing, all costs

attached to products are based on
standard or predetermined accounts.
Uses of Standard Costs

1. 2. 3.
Cost Pricing Performance
Control Appraisal
decisions

4. 5.
Management by
Cost
Objectives
Awareness
 VARIANCE ANALYSIS

Differences that arise

between actual A technique that can be used by
results and planned management to measure
results performance, correct
inefficiencies, and deal with the
accountability function.
Total Variance, is the difference between
total actual cost incurred and total
standard cost applied to the output
produced during the period.
DIRECT MATERIALS VARIANCES

( Actual Price – Standard Price ) ( Actual Quantity )

Direct Material Price Variance

Direct Material Efficiency (usage) Variance

( Actual Quantity – Standard Quantity ) ( Standard Price )

DIRECT LABOR VARIANCES

Direct Labor Rate (price) Variance

Actual Rate Standard Actual Hour

Rate

Direct Labor Efficiency Variance

Actual Hour Standard Standard

Hour Rate
FACTORY OVERHEAD VARIANCE

The analysis of factory overhead requires more detail than the

variance analysis for direct materials and direct labor. Factory
overhead variances may be determined using:

ONE-FACTOR ANALYSIS Controllable Variance

TWO-FACTOR ANALYSIS Volume Variance
THREE-FACTOR ANALYSIS
FOUR-FACTOR ANALYSIS Spending Variance
Variable Efficiency Variance
Variable Spending Variance
Volume Variance
Variable Efficiency Variance
Fixed Spending Variance
Volume Variance
ONE-FACTOR METHOD

Actual Factory Overhead xxxx

Less: Standard Hours * Standard FO rate xxxx

Total Factory Overhead Variance xxxx

TWO-FACTOR METHOD

Controllable (budget) Variance

Actual Factory Overhead xxxx

Less: Budget Allowance based on std. hours
Fixed Overhead xxxx
Variable (std. hours * Variable Rate) xxxx xxxx

Controllable Variance xxxx

Volume (Capacity or Production) Variance

Budget Allowance based on std. hours xxxx

Less: Std. Hours * Std. OH Rate xxxx

Volume Variance xxxx

THREE-VARIANCE METHOD

Spending Variance

Actual Factory Overhead xxxx

Less: Budget allowance based on actual hours
Fixed overhead xxxx
Variable (Actual Hours * Variable Rate) xxxx xxxx

Spending Variance xxxx

 Variable Efficiency Variance

Budget allowance based on actual hours xxxx

Less: Budget allowance based on standard hours xxxx

Variable Efficiency Variance xxxx

Volume Variance

Budget allowance based on standard hours xxxx

Less: Standard Hours * Factory OH rate xxxx

Volume Variance xxxx

FOUR-VARIANCE METHOD

Variable Overhead Variance

Actual Variable Factory Overhead xxxx

Less: Actual Hours * Variable OH Rate xxxx
Variable Spending Variance xxxx

Actual Hours * Variable OH Rate xxxx

Less: Standard Hours * Variable Overhead Rate xxxx
Variable Efficiency Variance xxxx
 Fixed Overhead Variance

Actual Fixed Overhead xxxx

Less: Budgeted Fixed OH at Normal Capacity xxxx
Fixed Spending Variance xxxx

Budgeted Fixed OH at Normal Capacity xxxx

Less: Standard Hours * Fixed OH Rate xxxx
Volume Variance xxxx
Thank you for
listening